Chances are you have a self managed super fund (SMSF) because you like the extra investment, tax and estate planning flexibility it can provide.

But to make the most of your opportunities you need to keep up with the latest rule changes and use them to your advantage.

NABs SMSF expert, Peter Hogan, outlines five key issues to consider for this financial year end and beyond.

Grow your fund tax-effectively

Recent Australian Taxation Office (ATO) statistics show that investment returns achieved by SMSFs with larger balances have generally been higher than smaller funds.

This would appear to be because bigger funds have made different investment decisions and can access a broader range of investment opportunities. But it’s also because the costs of running an SMSF usually don’t increase when more money is added.

There are a number of different ways to boost your SMSF’s investment power before the end of the financial year and in future years. For example, SMSFs can have up to four members but most have two. So adding fund members, such as members of your family or a business partner, could enable your fund to

• build a bigger and more diversified investment portfolio, and
• buy assets of greater value, such as residential or business property.

But before you consider using this or any of the other more involved strategies to grow your fund, all the current members should think about contributing more if cashflow allows, given the potential tax concessions.

For instance, if you contribute pre-tax money into super, tax is generally paid at a maximum rate of 15%, not your marginal tax rate of up to 46.5%. The exception is if you earn over $300,000 pa, where the Government has proposed that pre-tax contributions will still be concessionally taxed but at up to 30%, not 15%.

It’s also possible to grow your fund and reduce tax on future investment earnings by transferring certain assets you own personally into your SMSF. This is known as making an ‘in-specie’ contribution and it can be done with assets such as business property, listed securities and managed funds, but not residential property.

If you are thinking of making in-specie contributions this financial year, you should keep in mind that the effective date of the transaction will be when the fund acquires beneficial ownership of the asset.

For listed securities, beneficial ownership will be taken to be acquired when a properly executed off-market share transfer form is completed in a registrable form. For business property, beneficial ownership is transferred when the fund obtains a properly executed transfer in a registrable form, together with any title deeds and other necessary documents to enable registration of the fund as the legal owner.

In the lead up to the end of a financial year, it’s especially important to get the timing right, otherwise in-specie contributions could easily fall into a different financial year than you had intended.

Finally, keep in mind that the 30th of June falls on a Sunday this financial year, so contributions should be made by Friday the 28th of June at the latest and preferably earlier.

Beware the caps

As tax-effective as super may be, there’s a cap on the amount of concessionally taxed cash and in-specie super contributions you can make each year.

It’s $25,000 for all age groups this financial year and if you exceed it, an additional 31.5% tax is paid on the excess amount.

People aged 50 and over should also keep in mind the cap is now half what it was in 2011/12, so it’s wise to be vigilant. The last time the concessional contribution cap halved there was a big spike in the number of people who exceeded the cap and had to pay penalty tax.

Another issue to consider is that the Government plans to increase the cap for people aged 59 and over to $35,000 from 1 July this year. This is great news for people approaching retirement as it means you can contribute even more next year and beyond.

But a higher cap next year shouldn’t mean you put off contributing more this financial year if you haven’t used up all your cap. The cap is an annual limit and if you don’t contribute the full amount each financial year, the remainder cannot be carried forward to the following financial year.

So if you don’t make the most of the cap each year, you lose the opportunity to get more money into your SMSF where you could benefit from some significant tax concessions.

Make sure you give notice

If you intend to claim some of your super contributions as a tax deduction, you’ll need to complete a valid ‘notice of intent’. Then, wearing your trustees hat, you will need to confirm your SMSF has received and recorded it.

A notice of intent can be downloaded from the Australian Taxation Office website.

This notice has to be submitted by the earlier of when you lodge your personal income tax return for the year in which your contribution was made, or the end of the following financial year after your contribution was made.

Take out insurance in your fund

From 1 July 2012, SMSF trustees are legally required to consider insurance as part of the fund’s investment strategy. But don’t think of this as just a compliance requirement. You may find that insuring in super is more cost-effective than holding the cover outside super.

The premiums are deducted from your super account, not your bank account. Plus, if you make contributions to cover the cost of insurance, you can benefit from some tax concessions generally not available when buying the insurance yourself.

For example, if you are eligible to salary sacrifice you may be able to buy certain covers in super with pre-tax dollars. Alternatively, you may be eligible to claim your super contributions as a tax deduction regardless of whether they are used to purchase investments or insurance.

Furthermore, from 1 July 2014, some additional restrictions will apply to the types of insurance SMSFs can take out. So arranging certain types of cover now could allow you to lock in suitable insurances going forward and benefit from some potential cost savings.

Remember other year end requirements

As an SMSF trustee, you need to meet a range of ongoing obligations that are refined regularly. One new requirement is that you now need to determine the market value of the fund’s assets as at 30 June each year and include these values in the fund’s annual accounts and statements.

Some key changes also take effect on 1 July this year that may impact the strategies you use or are available to you next financial year. For example:

• the minimum ‘superannuation guarantee’ contribution rate employers are required to pay will increase from 9% to 9.25% pa, and
• the minimum income that needs to be received from a superannuation pension will increase from 3% to 4% pa.

Peter Hogan is the SMSF expert at nabtrade and he and his team have recently developed comprehensive SMSF eduction and ‘how to’ guides which can be found at secretsofsuper.com.au

If you’d like to book an appointment with an adviser, we can help.

Important information

This document contains general information only. If you wish to rely on this information to determine your personal tax obligations, you should consult with a Registered Tax Agent. In preparing this information, we did not take into account the investment objectives, financial situation or particular needs of any particular person. Before making an investment decision, a person needs to consider (with or without the advice or assistance of an adviser) whether this information is appropriate to their needs, objectives and circumstances. This information is based on our interpretation of relevant superannuation, social security and taxation laws as at 1 June 2013.